2 Cheap reveals record profit
2 Cheap Cars has announced it made a record $3.2 million net profit after tax (NPAT) in the six months to September 30, with the total up by $2.6m from the same period a year ago.
The company’s half-year report was released to the NZX on November 15 and also shows revenue climbed by four per cent to $41.9m over the same timeframe, while vehicle sales fell 12 per cent to 3,776 units.
Other highlights in the update from 2 Cheap show its year-to-date gross margin has risen 41 per cent, from $7.2m to $10.1m, and underlying earnings before interest, taxes, depreciation and amortisation – including finance income – climbed by $3m to $5.7m.
It says strong inventory levels and further insourcing of compliance activity have delivered savings and led to faster yard stock replenishment, resulting in strong trading from April through to September this year and driving profitable growth.
The rise in revenue was attributed to higher prices and stronger finance and insurance penetration rates. This has more than offset the drop in sales and the impact of lower revenue from the company loan book, which continues to wind down.
A move to prioritise margin over market share has seen 2 Cheap’s year-to-date gross margin come in at 24 per cent, a rise of six per cent and reflecting “astute vehicle selection in Japan and sharp focus across the full value chain”.
Operating costs were down slightly at $4.4m, total net operating cash flow improved from $4.6m to $6.2m and the company has cash of $6.1m, no net debt and total equity of $19m.
An interim dividend of 5.78 cents per share will be paid on December 6.
Paul Millward, pictured, chief executive officer, says the half-year result shows the success of what he calls 2 Cheap’s transformation strategy.
“By any measure, this is a terrific result and proof of a dramatic turnaround in less than 12 months,” he explains.
“The company is now in really great shape. We have a solid vehicle supply, costs continue to be well contained and our decision to prioritise margin is, literally, paying dividends. Our gross margin expansion plan is delivering ahead of schedule.”
As a result of a strong finish to the half year and a “pleasing October result”, the business has increased its full-year NPAT guidance to be above $6.8m, which is up from September’s prediction of between $5.2m and $5.7m.
Michael Stiassny, chairman, adds the company is well-placed to maintain its strong performance in the second half.
“Successfully returned to its profitable ‘no frills’ roots, 2 Cheap Cars’ performance is exceptional and the company is well positioned to not just withstand – but benefit from – the economic headwinds New Zealand is experiencing,” he notes.
